TMI Blog2013 (1) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... Y 2005-06, offering additional income (of Rs.75 lakhs) toward additional value of WIP is without merit. This is as the same (revised return) is only based on, or in terms of (or ought to be so), the declaration made during the Survey, and which is de hors and without reference to any material or evidence as to WIP. The revised return, thus, to the extent it is inconsistent with the same cannot be considered as in pursuance thereto or arising therefrom. The same would therefore require a finding by the AO, accepting the increased value of the closing WIP for that year, to claim for its inclusion as a part of the WIP for the current year. No evidence to substantiate its said claim stood adduced by the assessee either in the assessment proceedings or before the first appellate authority - The increase in the closing stock, is only on account of admission of the corresponding expenditure thereon, which, where not adjusted against the income for the year, gets carried forward in the form of unbilled expenditure. However, as the expenditure is not admissible, there is no question of it being adjusted either against the income for the current or any subsequent year, i.e., by being carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the Order dated 15.6.2010 by the Commissioner of Income Tax (Appeals)- V, Hyderabad ( CIT(A) for short), partly allowing the assessee s appeal contesting its assessment under section 143(3) of the Income-tax Act, 1961 ( the Act hereinafter) for the assessment year (AY) 2006-07 vide order dated 29/12/2008. 2.1 Narrating the facts of the case, the learned AR, its counsel, would submit that the assessee, a company in the business of civil construction and real estate, was subject to survey u/s. 133A of the Act on 16.2.2006. Adverting to the Statement of Shri C.Sivarama Prasad, Director (in answer to Question No. 10/PB pg. 81), it was pointed out by him that a disclosure of Rs.75 lakhs and Rs.50 lakhs was made for AYs 2005-06 and 2006-07 respectively to cover up various deficiencies. The company accordingly revised its return for AY 2005-06, declaring an additional income of Rs.75 lakhs for that year on 19.9.2006 (PB pages 1, 2) toward additional value of Work-in-Progress (WIP), paying tax thereon, as committed. The same was accepted by the Revenue as such. This was followed by the return of income for AY 2006-07 on 30.11.2006, admitting an income of Rs. 134.63 lakhs. The sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding qua WIP. It is thus, overwhelmingly apparent, the ld. AR would continue, that the income offered during Survey was toward WIP; the Revenue accepting it to the extent the same is favorable to it, while denying it when it comes to allowing credit for the higher value of opening WIP. The assessee, though, is under no obligation to offer Rs.50 lakhs declared during survey per its return of income for the current year. There is an unhealthy tendency to elicit confessions during the survey and search operations, which has been strongly disapproved of by the CBDT vide its Circular No.286/2/2003 dated 10.3.2003, exhorting the Revenue officers not to obtain confessions in such operations, but to concentrate on collection of evidence/material during such proceedings, and base the assessments thereon, placing a copy thereof on record. 2.3 The ld. Departmental Representative (DR), on the other hand, relied on the impugned order for the disallowance of Rs.75 lakhs, alluding to paras 5.2 and 5.3 thereof. No material to substantiate its claim regarding the additional WIP was furnished even before the ld. CIT(A); the assessee as much as not even providing any details of WIP before any au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit admitted on contract receipts is only 5.80% and there are land purchases to the extent of 84.95 lakhs during the year of account. Further, there is a share application money of Rs.2.66 crores. What do you say about the correctness of the profit admitted of Rs.1.39 Crores and the share application money. A. So far as the share application money is concerned I am to state that the entire share application is explainable and all the persons are assessed to tax. With regard to the correctness of the profit admitted, I am to state that the profit admitted is on sub-contract works taken from M/s. ECI Engg. Construction Co. Ltd., Hyderabad which is reasonable. However, in order to purchase peace from the Department and in order to avoid litigation, the company comes forward to admit an income of Rs.75 lakhs (Rupees Seventy five lakhs only) for the Asst. Year 2005-06 over and above the admitted income of 1.39 Crores and Rs.50 lakhs (Rupees fifty lakhs only) for the Asst. year 2006-07 over and above the estimated income as on today. The company will pay additional tax and file the revised return for the Asst. Year 2005-06 before March, 2006. The company will also pay Advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment in accounts is explained, would result in a corresponding increase in the closing stock as well, so that an increase in the opening stock shall by itself have no revenue effect. The closing stock (WIP) in the instant case continues to be uninfluenced by the increase in the opening stock, and which cannot be, whether the said increase is on account of a valuation difference or a quantitative difference or both, even which, in the absence of the requisite details or materials, though vital and basic to the assessee s claim, continues to be an unknown factor even up to the final fact finding stage. Rather, any undisclosed expenditure (i.e., assuming its detection during survey), forming part of WIP, which constitutes the assessee s stock-in-trade, is inadmissible u/s. 69C, so that the same would stand to be included in the assessment for the current year, the survey date being 16.02.2006 and, further, not allowed set off as expenditure. 3.3 In fact, profits, inadequacy of which is alluded to in the said Statement, would, rather than being augmented thereby, get deflated in view of a part of the disclosure, i.e., as offered by the assessee for the immediately preceding ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we may clarify, is only on account of admission of the corresponding expenditure thereon, which, where not adjusted against the income for the year, gets carried forward in the form of unbilled expenditure. However, as the expenditure is not admissible, there is no question of it being adjusted either against the income for the current or any subsequent year, i.e., by being carried over as unbilled expenditure, so that it would result in a net increase in the income for the year of expenditure, with no implication for any other year. 3.4 In view of the foregoing, we find no infirmity in the impugned order on this score, which is a subject matter of assessee s Ground No. 2 (Ground No.1 being general in nature, warranting no adjudication) nor has any been brought to our notice, for us to interfere therewith, i.e., in result. On the contrary, as sought to be clarified hereinabove, the assessee s claim is not maintainable from all angles. 4.1 As regards the second issue, we again find the impugned order to be in agreement with the material on record as well as the law in the matter. Once it has been found as a fact that the disclosure made in survey had no reference to WIP or its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he two amounts bear the same character, i.e., toward reconciling the discrepancies found in books of account or other transactions entered into by the assessee. 4.2 As regards the deletion of Rs. 84.93 lakhs, for which the Revenue is in appeal, the said amount is, without doubt, not towards any difference in accounts observed or detected in Survey, so that to that extent the observation of the ld. CIT(A) is off the mark, and needs to be modified, and which we hereby confirm. The same, as afore-stated, is only on account of a difference in valuation, by adopting a different method, which the ld. DR has remarked as more scientific. We are unable to make any definite comments thereon, i.e., as to the manner and extent to which indirect expenses are to be loaded to the direct expenditure in valuing the inventory as at the end of the accounting period, apart from stating that some loading is indeed warranted. This is so as some indirect expenditure, viz. interest cost, depreciation on plant and machinery or equipment, though period costs, do indeed contribute to the cost in bringing the inventory of goods being valued to their present state and location; while some are purely administ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is thus estopped from taking shelter of the said Circular, which is only to protect the assessees from harassment from Revenue Officers in search and survey operations, of which, even as pointed out by the ld. DR before us, there is no clue in the instant case, or any pointed out to us by the assessee. 5. The next ground (G # 5) of the Revenue s appeal is in relation to deletion by the ld. CIT(A) of a disallowance for Rs. 2 lakhs qua Entry Tax made by the AO on the ground of it being capital expenditure, so that it would warrant being capitalized along with the purchase cost of the machinery, on which same is paid. The ld. CIT(A) allowed relief on the basis that the same was paid on the shifting of the machinery. When called upon by the Bench to explain the basis of the said finding by the ld. CIT(A); his order indicating none, the ld. A.R. conceded to the matter being restored back to the file of the Assessing Officer for proper verification, averring that entry tax is also paid on old machinery, when moved/transported from one State to another. We wonder why, then, the assessee did not or could not substantiate its claim with evidence before either authority, who have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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